The researchers examined industry data from the UK and 24 European countries between 1995 and 2017 and found that at low levels of adoption, robots have a negative impact on profit margins. But at a higher level of adoption, bots can help increase profits.

According to the researchers, this U-shaped phenomenon is due to the relationship between cost reduction, new process development and new product innovation. Although many companies first adopt robotic technologies to reduce costs, this process innovation can be easily copied by competitors, so with low levels of robot adoption, companies focus on competitors rather than developing new products. However, as adoption increases and robots are fully integrated into business processes, the technologies can be used to increase revenue through new product innovations.

In other words, companies using robots are likely to focus on streamlining their processes before shifting their focus to product innovation, which gives them greater market power through the ability to differentiate themselves from their competitors. The results are published in IEEE Transactions on Engineering Management.

Robots have been widely used in industry since the 1980s, particularly in sectors where they can perform physically demanding and repetitive tasks, such as assembling cars. In the decades since then, the rate of robot adoption has increased dramatically and consistently around the world, and the development of precise electrically controlled robots makes them particularly useful for high-value manufacturing applications that require greater precision, such as electronics.

While robots have been shown to reliably increase labor productivity at the industry or country level, less research has been done on how robots affect profit margins at a similar macro scale.

“If you look at how the introduction of computers affected productivity, you actually see a slowdown in productivity growth in the 1970s and early 1980s before productivity starts to rise again, which it did until the 2008 financial crisis,” said Professor Chander Velu of the Cambridge Institute of Manufacturing. “What’s interesting is that a productivity-enhancing tool had the opposite effect, at least initially. We wanted to know if there was a similar pattern in robotics.”

“We wanted to know if companies are using robots to improve business processes, rather than to improve the entire business model,” said co-author Dr. Philip Chen. “Profit margin can be a useful way to analyze this.”

“When you start bringing more and more robots into your process, eventually you get to a point where the whole process has to be redesigned from the bottom up,” Velu said. “It is important that companies develop new processes at the same time as they incorporate robots, otherwise they will end up at the same point.”

If companies want to get to the profitable side of the U-shaped curve more quickly, the researchers say, it’s important that the business model adapts in tandem with the introduction of robots. Only after robots are fully integrated into the business model can companies fully harness the power of robotics to develop new products that generate profits.

Source: Science Daily